Washington (CNN) - Democratic Rep. Chris Van Hollen of Maryland filed a lawsuit Wednesday against the Internal Revenue Service over the agency's criteria for tax-exempt social welfare groups.

The lawsuit seeks clarification over a discrepancy in the way federal law defines eligibility requirements for a 501(c)(4) group versus the way the IRS defines such groups.

The difference comes down to two words: 'exclusively' and 'primarily.'
The federal tax code states that a 501(c)(4) group is tax-exempt if the non-profit is operated "exclusively" to promote social welfare.

But to meet the IRS requirements, a social welfare organization must operate "primarily" to further the general welfare of a community. In other words, a group can participate in political advocacy, as long as its "primary" work benefits a larger group of people.

The lawsuit seeks to amend IRS regulations so that 501(c)(4) status applies only to groups that work "exclusively" on social welfare.

A Treasury spokesperson said the department "cannot comment on pending litigation." The IRS also declined comment.

The wording in IRS regulations has caused confusion amid the recent scandal in which the IRS admitted to applying extra scrutiny to 501(c)(4) groups with names tied to political activism. The controversy sparked numerous congressional hearings and a change in management at the agency.

While conservative groups with the names "tea party" and "patriot" were initially revealed as some of the targeted organizations, the IRS inspector general later said that groups with the word "progressive"–a common name found in liberal organizations–were also on a list of criteria for extra scrutiny.

Van Hollen, the ranking member on the House Budget Committee, filed the suit against the Treasury Department and the IRS. Other plaintiffs in the suit include Democracy 21, Campaign Legal Center and Public Citizen.

According to the Center for Responsive Politics, about 152 social welfare groups spent $256 million in the 2012 presidential cycle, roughly 20% of the total amount of outside spending on elections held that year.

The conservative group Crossroads GPS and the liberal group Priorities USA are both examples of 501(c)(4) organizations that spent heavily in the last election cycle. Social welfare groups do not have to disclose their donors.

Other groups lumped under the category of outside spending include super PACs (which spent the most at $609 million), trade associations, unions and parties.

On a conference call with reporters, Van Hollen argued political groups who want to take part in campaign and election activity can obtain tax exempt status under Section 527 of the tax code. Unlike 501(C)(4) groups, however, Section 527 groups–such as political action committees and super PACS–must disclose their donors.

"If you do that, the IRS doesn't have to be in the business of trying to determine whether a 501(c)(4) is primarily engaged in social welfare activities or primarily engaged in political activities," he said.

Asked on the call whether he thinks Organizing for Action, the 501(c)(4) group that promotes the president's agenda in office, should be considered more of a political (527) group than a social welfare organization, Van Hollen noted that he's referring to political activity in which groups "spend money directly in an election to try to elect or defeat a candidate for federal office." OFA, on the other hand, works to educate voters on issues important to the president.

However, Fred Wertheimer, founder and president of Democracy 21, said on the call his group will be actively watching to see if OFA gets politically involved in 2014 midterm elections.

Van Hollen added that a more set-in-stone definition should be applied to IRS regulations on the meaning of "political activity."

"We believe there should be a bright line drawn, that at least is a question of whether something is political activity or not, the reason the IRS has run into all these difficulties is really trying to parse gradations between whether something is 51% political activity or 49% activity."

In fact, the IRS and the Treasury began in May talking about possible changes on how to measure "primary" activity by social welfare groups, including clarification on the definition of "political campaign intervention."

In its "Priority Guidance" plan released this month, the IRS said it was working with Treasury to develop clarification on the issue was part of its "Priority Guidance plan."

However, final guidelines have not been published.

For the lawsuit, the plaintiffs' attorneys filed the legal challenge in the U.S. District Court for the District of Columbia, with Scott Nelson of Public Citizen serving as lead attorney.

Democracy 21 and the Campaign Legal Center petitioned the IRS more than two years ago for a review of the regulations, and Citizens for Responsibility and Ethics in Washington (CREW) filed a similar suit in May.

soundoff(36 Responses)

jinx9to88

@ much thunder..little rain

anyone heard from al or jessie on the 3 thugs who shot the baseball player in oklahoma..didnt think so

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Wrong Blog!! This blog is about another GOP witch hunt that turned up nothing. GOP wasting more tax payer money on stuff not helping the country just like trying to Repeal Obamacare that is "LAW". Sorry.

August 21, 2013 11:16 am at 11:16 am |

Getoverit

@Sniff it
Good. It’s about time the tax-exempt gravy train gets derailed and the IRS gets forced to obey the freekin statutes. EXCLUSIVELY. Period. That’s the LAW.
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Agreed. And OFA should be first on the list.

Good. No group with any political affiliation should receive tax exempt status. And that includes churches!
JMHO.

August 21, 2013 11:30 am at 11:30 am |

OK

Donna, if you knew what you were talking about, you would know that any group applying for 501C4 status is allowed by law to contnue to operate while their applications are under review. No one was denied TE status other than the 3 liberal groups, namely 3 chapters of Emerge America.

August 21, 2013 11:30 am at 11:30 am |

Marie MD

Great, let's waste more of our tax payer money.
The person who denied or checked and double checked the legitimacy of the teatroll (koch brothers groups) is a republican. He also checked democratic grips trying to do the same.
BTW van hollen, anything that een smells of teatrolls is NOT American it stinks of traitor and unpatriotic.

August 21, 2013 11:38 am at 11:38 am |

Sniffit

"Agreed. And OFA should be first on the list."

It should apply across the board. I don't care whose first or last...they should all lose the tax-exemption the second they go political.

That being said, I don't think it's "political" per se to spend money on an advertisement that addresses a particular issue and takes a position. It's when they start saying negative or positive things about a particular candidate or suggesting who you should vote for or how you should vote on a particular ballot initiative...those things cross the line. If you want to inform and sway people to your views on an issue, that's fine...but not only should you be prohibited from going specifically political, but you should also be help to a higher standard of truth because you're getting tax exempt status to serve a public good, not serve up propaganda.

August 21, 2013 11:38 am at 11:38 am |

just asking

so would planned parenthood be banned from taking out political attack ads??? would obama's private propaganda organization, formerly his campaign organization, now be taxed??? or would only the groups on the right be targetted once again???

August 21, 2013 11:40 am at 11:40 am |

Rudy NYC

Rick McDaniel

Corruption in our government is simply rampant, and unless we demand change, we will cease to be a free country.
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Psst. Republican President Eisenhower put the current IRS regulation in place, dude.
Republican President Richard M. Nixon watched Vice-President Spiro T. Agnew resign amidst criminal charges, and followed suit himself a year later.
Republican President Ronald "Dutch" Reagan pushed for the progressive tax code those at the top and bottom to pay nothing.
Republican President George H.W. Bush watched members of his own party disgrace the themselves in the S&L scandals.
Republican President George W. Bush tasked his VP, Dick Cheney, to implement the high tech NSA surveillance programs.

There. That just about covers every Republican President for the last umpteen decades or so.

August 21, 2013 11:43 am at 11:43 am |

just asking

Sniffit
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"Agreed. And OFA should be first on the list."
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It should apply across the board. I don't care whose first or last...they should all lose the tax-exemption the second they go political.
That being said, I don't think it's "political" per se to spend money on an advertisement that addresses a particular issue and takes a position. It's when they start saying negative or positive things about a particular candidate or suggesting who you should vote for or how you should vote on a particular ballot initiative...those things cross the line. If you want to inform and sway people to your views on an issue, that's fine...but not only should you be prohibited from going specifically political, but you should also be help to a higher standard of truth because you're getting tax exempt status to serve a public good, not serve up propaganda.
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what a load of baloney. ussc has already decided groups can participate in elections. citizens united. ever hear of it? it is decided law. live with it, just like you tell everybody to live with obamacare.

August 21, 2013 11:47 am at 11:47 am |

Fair is Fair

Sniffit

""operated exclusively" is too restrictive"

Why? We're talking about handing out tax-exempt status for their ENTIRE organization and ALL of its income, not some ratio that matches the ratio of social welfare work it does versus the amount of politicizing and electioneering it does. They want it all, they can give it all. Otherwise they're just profiteering off the tax-exempt status and placing more burden on middle-class taxpayers to cover their absence from the tax revenue.
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Someone please check the temperature in hell... I'm in agreement with what the counselor from MA said.